Financial Analysis: Use Your Data Effectively

Community Action Partnership 2017 Annual Convention August 29 September 1, 2017 Philadelphia, PA Philadelphia Downtown Marriott Financial Analysis: Use Your Data Effectively Thursday, August 31, 2017 11:00 am 12:30 pm Presented by: Denes L. Tobie, CPA, Partner NONPROFIT AND GOVERNMENT PRACTICE www.wipfli.com/ngp 888.876.4992 Reproduction or use of any training materials in this manual, except within a participant s agency without express written permission is prohibited by copyright law.

Financial Analysis: Use Your Data Effectively Trainer: Denes L. Tobie, CPA, Partner 1 Materials/Disclaimer Please note that these materials are incomplete without the accompanying oral comments by the trainer(s). These materials are informational and educational in nature and represent the speakers' own views. These materials are for the purchasing agency s use only and not for distribution outside of the agency or publishing on a public website. 2 Financial Analysis: Use Your Data Effectively 1

Agenda 1. Key Indicators 2. Dashboards 3. Ratios 4. Unfunded liabilities 5. Net assets and reserves 6. Forecasting 7. The new NPO Reporting Model impacts 3 What kind of information do you share with your board and who does it? Have you ever asked your board what they want to see? Sometimes more is not better.more is just more! 4 Financial Analysis: Use Your Data Effectively 2

Key Indicators 5 Key Indicators to monitor When deciding on what trends to look at, keep in mind Key Performance Indicators What is important to each program? Key performance indicators are separate from trends, but you need to monitor both aspects. Make sure they are meaningful. 6 Financial Analysis: Use Your Data Effectively 3

Key Indicators to monitor Analysis of this type allows you to be proactive, not reactive!! 7 Financial Key Indicators to monitor Program efficiency- Program service expenses/total expenses Measures how much you are spending on mission vs. administrative expenses Operating reliance- Unrestricted program revenue/total expenses Measures whether or not the organization can operate on program revenue vs. restricted net assets Fundraising efficiency- Unrestricted contributions/fundraising expenses How much you can raise for every $1 8 Financial Analysis: Use Your Data Effectively 4

Statements of Activities Years Ended August 31, 2016 2016 Temporarily Unrestricted Restricted Total Revenue: Federal grants $ 11,228,847 $ 209,885 $ 11,438,732 State and county grants 482,807 19,036 501,843 Corporate contributions 137,608 750 138,358 Foundation contributions 10,493 40,917 51,410 Other revenue 111,740 0 111,740 In-kind contributions 1,195,619 0 1,195,619 Net assets released from restrictions 281,035 ( 281,035) 0 Total revenue 13,448,149 ( 10,447) 13,437,702 Expenses: Program services: Head Start 7,106,647 0 7,106,647 Early Head Start 2,434,235 0 2,434,235 Early Head Start Child Care Partnership 787,658 0 787,658 Food programs 358,216 0 358,216 State Preschool program 250,180 0 250,180 Local 27,244 0 27,244 Other program services 313,750 0 313,750 Total program services 11,277,930 0 11,277,930 Supporting services: Management and general 2,050,486 2,050,486 Fund-raising 7,326 0 7,326 Total supporting services 2,057,812 0 2,057,812 Total Expenses 13,335,742 0 13,335,742 Change in net assets 112,407 ( 10,447) 101,960 Net assets - Beginning of year 1,723,290 2,011,673 3,734,963 Net assets - End of year $ 1,835,697 $ 2,001,226 $ 3,836,923 9 Financial Key Indicators to monitor Program efficiency- 11,277,930/13,335,742=84.57% Looking for 80-90% Operating reliance- 13,448,149/13,335,742=1.008% Less than 1 mean additional funds are necessary to pay operations Fundraising efficiency- 148,101/7,326=2021% This shows how well they raise funds. 10 Financial Analysis: Use Your Data Effectively 5

Key Indicators to monitor Next, use the key numbers to analyze trends in your programs What is your transportation cost per child? What is your average cost to weatherize a home? What are your average meal costs for the HS children? What are your average meal costs for your senior programs? 11 Key Indicators to monitor Total Federal Head Start Grant annually $ 3,000,000 (Calendar year end) Number of children to serve 600 Annual amount received per child $ 5,000 Monthly amount received per child $ 417 Jan Feb March April Budgeted costs per month $ 250,000 $ 250,000 $ 250,000 $ 250,000 Budgeted costs year to date $ 250,000 $ 500,000 $ 750,000 $ 1,000,000 Actual costs per month $ 246,540 $ 238,950 $ 272,480 $ 252,375 Actual costs year to date $ 246,540 $ 485,490 $ 757,970 $ 1,010,345 Year to date variance $ 3,460 $ 14,510 $ (7,970) $ (10,345) Children to serve 600 600 600 600 Actual children served 589 604 602 610 Cost per month per child $ 419 $ 396 $ 453 $ 414 In Kind requried $ 50,000 $ 50,000 $ 50,000 $ 50,000 In Kind received 35,000 48,000 64,000 56,000 Year to date required 50,000 100,000 150,000 200,000 Year to date received $ 35,000 $ 83,000 $ 147,000 $ 203,000 Year to date variance (15,000) (17,000) (3,000) 3,000 12 Financial Analysis: Use Your Data Effectively 6

Dashboards 13 Monthly Dashboard Another tool is a monthly Dashboard of items that you, management, and the board can use. It can be tailored to your needs and is a way to be alerted to areas of concern. 14 Financial Analysis: Use Your Data Effectively 7

Monthly Dashboard Financial Dashboard November 30, 2011 Measure Target 6 months ago Now Description Current Ratio (Current Assets Ability to pay off current divided by Current Liabilities) 1.00 and above 1.16 1.06 obligations with current assets Pay-Off Ratio (cash + a/r)/accts Payable) Average Day Cash On Hand (cash & equivalents/avg exp per day Average Days in Accounts Receivable (Accts rev/avg revenue per day) Average days in Accounts Payable (accts payable/avg exp's per day) Debt to Net Assets Ratio (Total Liab/Total Net Assets) Unrestricted Net Assets Reserve (Unrestricted Net Assets/Avg total expenses per month 3.00 and above 2.59 2.82 15-20 days 20-30 days 15-20 days 100% and below 18.33 20.00 Number of times existing cash balance can pay off existing accounts payable balance Number of days cash is on hand to pay average daily expenses Number of days cash is tied up in accounts 14.42 31.49 receivable Number of days it takes to pay vendors 19.00 19.00 Determines how leveraged 67% 75% the organization is Measures the long-term 2.00 and above 1.11 sustainability of the 0.90 organization Revenue to Expense (total rev/total exp) 100% 99% Measures if the 101% organization was profitable or not Administrative Exp's to total Exp's (Admin/total exp) Computes the percentage of expenses that are paid 10% and below 8% 8% for management activities vs. program activities 15 Indicator Good Watch Act Staff retention Turnover Attendance at board meetings Quorum at meetings Board giving Cash on hand Months in reserve 16 Financial Analysis: Use Your Data Effectively 8

Ratios 17 Ratios Illustrates liquidity, financial flexibility, ability to meet obligations, and needs for external financing Key indicators: Current ratio Current debt obligations Restricted cash or net assets Long-term assets not liquid 18 Financial Analysis: Use Your Data Effectively 9

Ratios COMMUNITY ACTION AGENCY FISCAL YEAR ENDING 2001 2002 2003 2004 2005 2006 CASH 726,191 380,432 (27,571) 1,707,200 693,974 168,964 RESTRICTED CASH 0 0 0 0 145,836 459,528 CERTIFICATES OF DEPOSIT 0 0 0 0 0 125,056 ACCOUNTS RECEIVABLE-GRANTS 312,198 698,055 1,490,101 851,101 800,886 941,396 TRAVEL ADVANCES 0 0 2,829 2,080 0 0 PREPAID EXPENSE 41,021 2,165 2,681 1,195 34,525 93,190 CURRENT MICRO LOANS RECEIVABLE 0 0 0 0 2,782 6,221 CURRENT PORTION OF REVOLVING LOANS 0 0 0 0 0 23,928 LAND CONTRACT RECEIVABLE 18,955 18,699 18,699 18,699 18,699 18,699 BLDG/IMP HELD FOR SALE 0 0 0 0 0 74,474 CURRENT ASSETS 1,098,365 1,099,351 1,486,739 2,580,275 1,696,702 1,911,456 PROPERTY & EQUIPMENT 2,026,649 1,933,383 2,007,738 1,828,656 2,139,144 1,977,809 ENDOWMENTS 0 0 0 50,000 40,917 47,006 L/T CERTIFICATES OF DEPOSIT 0 0 0 0 0 30,000 L/T REVOLVING LOANS 0 0 0 0 133,689 306,416 L/T MICRO LOANS 0 0 0 0 9,976 20,206 L/T MORTGAGE 0 0 0 0 89,910 89,910 TOTAL ASSETS 3,125,014 3,032,734 3,494,477 4,458,931 4,110,338 4,382,803 CURRENT PORTION OF L/T DEBT 199,612 32,710 35,180 37,836 40,864 72,974 NOTES PAYABLE 0 169,093 157,867 147,714 131,164 112,298 ACCOUNTS PAYABLE 125,293 272,978 278,026 433,552 559,924 254,196 ACCRUED PERSONNEL EXPENSE 210,705 329,162 331,645 341,915 429,598 495,063 SELF-FUNDED INS RESERVE 0 0 0 0 62,732 0 DUE TO GRANTORS 0 64,384 76,372 76,284 0 0 ADVANCED PROGRAM INCOME 321,461 55,877 456,865 1,442,683 323,518 651,736 CURRENT LIABILITIES 857,071 924,204 1,335,955 2,479,984 1,547,800 1,586,267 LONG-TERM DEBT 394,758 376,498 372,878 335,469 334,862 252,501 L/T REVOLVING LOANS PAYABLE 0 0 0 0 150,525 366,872 L/T DUE TO GRANTORS 0 0 0 0 224,303 224,303 TOTAL LIABILITIES 1,251,829 1,300,702 1,708,833 2,815,453 2,257,490 2,429,943 INVESTMENT IN PROPERTY & EQUIP 1,432,279 1,355,082 1,458,381 1,290,683 1,467,129 1,422,358 UNDESIGNATED 421,951 358,251 308,564 334,096 367,020 511,803 UNRESTRICTED NET ASSETS 1,854,230 1,713,333 1,766,945 1,624,779 1,834,149 1,934,161 TEMPORARILY RESTRICTED NET ASSETS 18,955 18,699 18,699 18,699 18,699 18,699 TOTAL NET ASSETS 1,873,185 1,732,032 1,785,644 1,643,478 1,852,848 1,952,860 TOTAL LIABILITIES AND NET ASSETS 3,125,014 3,032,734 3,494,477 4,458,931 4,110,338 4,382,803 19 Ratios COMMUNITY ACTION AGENCY FISCAL YEAR ENDING 2001 2002 2003 2004 2005 2006 PROGRAM REVENUE 7,433,713 9,488,757 11,683,338 13,656,267 15,788,755 14,583,096 CONTRIBUTIONS 83,466 34,814 11,805 19,883 31,894 115,896 CONTRIB SPACE & MATER'L 2,756,680 2,426,229 351,348 149,963 127,625 404,693 FEE FOR SERVICE 200,432 110,565 214,937 33,862 13,473 79,494 INVESTMENT INCOME 37,940 21,586 35,349 51,057 31,227 15,781 OTHER 41,992 28,947 85,956 186,333 275,346 179,572 ACCT METHOD CHG- ENDOWNMENT 0 0 0 35,000 0 0 TOTAL SUPPORT / REVENUE 10,554,223 12,110,898 12,382,733 14,132,365 16,268,320 15,378,532 COMMUNITY SERVICES 1,302,992 2,546,415 4,372,644 4,506,250 5,582,550 6,096,674 HEALTH & NUTRITION 2,100,529 2,134,305 474,851 514,954 472,059 342,234 EDUCATION 6,057,970 6,234,351 5,970,997 7,004,582 8,187,239 7,132,726 ADM. & GENERAL 1,358,115 1,336,724 1,510,629 2,248,745 1,710,269 1,705,328 LOSS ON DISPOSAL OF ASSETS 0 0 0 0 106,833 1,558 TOTAL EXPENDITURES 10,819,606 12,251,795 12,329,121 14,274,531 16,058,950 15,278,520 INCREASE (DECREASE) IN UNRESTRICTED (265,383) (140,897) 53,612 (142,166) 209,370 100,012 INCREASE (DECREASE) IN TEMP RESTRICTED (382) (256) 0 0 0 0 TOTAL INCREASE/DECREASE IN NET ASSETS (265,765) (141,153) 53,612 (142,166) 209,370 100,012 PERFORMANCE MEASURES HEAD START EXPENDITURES 3,600,000 3,636,000 3,672,360 3,709,084 3,746,174 3,783,636 NUMBER OF CHILDREN ENROLLED 500 499 502 501 500 480 EARILY HEAD START EXPENDITURES 1,200,000 1,212,000 1,224,120 1,236,361 1,248,725 1,261,212 NUMBER OF CHILDREN ENROLLED 220 221 230 225 224 200 Wx EXPENDITURES 890,000 898,900 907,889 916,968 926,138 935,399 NUMBER OF HOMES Wx 200 175 210 230 222 230 20 Financial Analysis: Use Your Data Effectively 10

Ratios COMMUNITY ACTION AGENCY RATIOS FISCAL YEAR ENDING 2001 2002 2003 2004 2005 2006 CURRENT RATIO - LIQUIDITY 128.15% 118.95% 111.29% 104.04% 109.62% 120.50% current assets current liabilities current assets as a % of current liabilities PAY-OFF RATIO 8.3 4.0 5.3 5.9 2.7 4.4 (cash + a/r) accts payable number of times cash + a/r can pay-off a/p AVERAGE EXPENSES PER DAY $31,011 $37,791 $46,068 $54,325 $61,274 $57,207 total expenses - in kind 260 working days AVERAGE DAYS IN ACCOUNTS PAYABLE 4.0 7.2 6.0 8.0 9.1 4.4 accts payable avg exp's per day avg number of days exp's in accts payable AVERAGE PROGRAM REVENUE PER DAY $28,591 $36,495 $44,936 $52,524 $60,726 $56,089 program revenue 260 working days 21 Ratios COMMUNITY ACTION AGENCY RATIOS FISCAL YEAR ENDING 2001 2002 2003 2004 2005 2006 AVERAGE DAYS IN ACCOUNTS RECEIVABLE 10.9 19.1 33.2 16.2 13.2 16.8 accounts receivable avg program revenue per day avg number of days grant receivable in accts receivable AVERAGE DAYS CASH ON HAND 23.4 10.1 (0.6) 31.4 11.3 3.0 cash & equivalents avg exp's per day ADMINISTRATIVE EXP'S TO TOTAL EXP'S 12.55% 10.91% 12.25% 15.75% 10.65% 11.16% administrative + general exp's total expenses administrative + general exp's as a % of total expenses DEBT TO NET ASSETS RATIO 66.83% 75.10% 95.70% 171.31% 121.84% 124.43% total liabilities total net assets liabilities as a % of net assets UNRESTRICTED NET ASSETS RESERVE 2.1 1.7 1.7 1.4 1.4 1.5 OPERATING STRENGHT unrestricted net assets avg total expenses per month avg number of months exp's in unrest net assets REVENUE TO EXPENSE 97.55% 98.85% 100.43% 99.00% 101.30% 100.65% total revenue total expense total revenue as a % of total exp's 22 Financial Analysis: Use Your Data Effectively 11

Ratios COMMUNITY ACTION AGENCY RATIOS FISCAL YEAR ENDING 2001 2002 2003 2004 2005 2006 PROGRAM EFFECTIVENESS Program Expenes 87% 89% 88% 84% 89% 89% Total Expenses Amount spent on meeting the organizations goals FUND-RAISING EFFICIENCY Public Support Fund-raising Expenses Ability to raise funds in an economical manner 23 Ratios COMMUNITY ACTION AGENCY RATIOS PERFORMANCE MEASURES FISCAL YEAR ENDING 2001 2002 2003 2004 2005 2006 AVERAGE COST PER HEAD START CHILD head start expenses 7,200 7,287 7,315 7,403 7,492 7,883 number of kids enrolled AVERAGE COST PER EARLY HEAD START CHILD early head start expense 5,455 5,484 5,322 5,495 5,575 6,306 number of kids enrolled AVERAGE COST OF HOMES Wx total Wx expenditures 4,450 5,137 4,323 3,987 4,172 4,067 number of homes Wx 24 Financial Analysis: Use Your Data Effectively 12

Ratios Current Ratio 140% 130% 120% 110% 100% 90% 80% 2001 2002 2003 2004 2005 2006 25 Ratios Average Days Cash on Hand 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 (5.0) 2001 2002 2003 2004 2005 2006 26 Financial Analysis: Use Your Data Effectively 13

Ratios Average Days in Accounts Payable 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2001 2002 2003 2004 2005 2006 27 Ratios Average Revenue per Day $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 2001 2002 2003 2004 2005 2006 28 Financial Analysis: Use Your Data Effectively 14

Ratios Average Expenses per Day $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 2001 2002 2003 2004 2005 2006 29 Unfunded Liabilities 30 Financial Analysis: Use Your Data Effectively 15

Unfunded Liabilities What other things should you be looking at? Do you have large unfunded liabilities? Sick time accrual Vacation accrual Deferred revenue 31 Net Assets and/or Reserves 32 Financial Analysis: Use Your Data Effectively 16

Net Assets and/or Reserves What is the balance of your temporarily restricted net assets? And what are they restricted for? What is the balance of your unrestricted net assets? And how is it funded? I.e., property and equipment, receivables, loans, or cash? If either one (temporarily or unrestricted net assets) is in a deficit position, this needs to be addressed ASAP! Or it could be a finding. 33 Net Assets and/or Reserves RULE OF THUMB: Available unrestricted net assets should be equal to 5-10% of annual revenue Organization s 2017 Revenue: $17,644,944 Organization s 2017 Unrestricted Net Assets: $175,713 Recommended balance should be between $882,250 and $1,764,500 34 Financial Analysis: Use Your Data Effectively 17

Net Assets and/or Reserves RULE OF THUMB: Available unrestricted net assets should be equal to 5-10% of annual revenue Organization s 2017 Revenue excluding in kind: $4.9 Million Organization s 2017 Unrestricted Net Assets: $290,016 Recommended balance should be between $245,000 and $490,000 35 Net Assets and/or Reserves RULE OF THUMB: Available unrestricted net assets should be equal to 5-10% of annual revenue NPO S 2017 Revenue: $19.2 Million NPO S 2017 Unrestricted Net Assets are $2,801,987 less property and equipment of $2,118,395 and loans receivable of $503,629 equal an available net assets balance of $179,963 Recommended balance should be between $960,000 and $1,920,000 36 Financial Analysis: Use Your Data Effectively 18

Forecasting 37 Forecasting Forecasting 1a : to calculate or predict (some future event or condition) usually as a result of study and analysis of available pertinent data The company is forecasting reduced profits.; especially :to predict (weather conditions) on the basis of correlated meteorological observations They're forecasting rain for this weekend. b : to indicate as likely to occur Optimists are forecasting an immediate upswing in business. 38 Financial Analysis: Use Your Data Effectively 19

Forecasting Budgeting and forecasting go hand in hand: Your budget is your best guess going into the year, the forecast is taking what you already know and projecting that to some future time period. This can be done at any point once the year has begun to predict the final outcome. It can be done fiscally or programmatically. 39 40 Financial Analysis: Use Your Data Effectively 20

New NPO Reporting Model 41 FASB Modifies Not-for-Profit Financial Reporting Rules The standard update is designated to help notfor-profits tell their story through their financial statements. Improve relevance, transparency, and comparability Simplification More and better information surrounding resources (including usage and restriction) Current guidance has been effective since 1993. 42 Financial Analysis: Use Your Data Effectively 21

FASB Modifies Not-for-Profit Financial Reporting Rules 43 Main Components of Phase I Changes 44 Financial Analysis: Use Your Data Effectively 22

FASB Modifies Not-for-Profit Financial Reporting Rules Key Phase I Changes: Improving presentation and disclosures for net asset classes (net asset classification) Allowing usage of direct OR indirect method in presenting cash flows Enhancing information about the liquidity and availability of financial resources Providing better information about expenses and expense allocation Improving reporting of investment return 45 Net Asset Classification *NFP s may choose to disaggregate further **New disclosure requirement 46 Financial Analysis: Use Your Data Effectively 23

Net Asset Classification Statement of Financial Position Current GAAP: NEW GAAP: 47 Net Asset Classification Disclosures Amount, Purpose, and Type of Board Designations -Can be on the face OR -In the footnotes Examples: -Quasi-endowments -Future expenditures -Capital needs Nature and Amount of Donor Restrictions -Can be on the face OR -In the footnotes Examples: -Assets with stipulations for preservation (works of art or land) -Assets to be invested (endowments) -Support of particular activities -Use in a specified future period -Acquisition of long-lived assets 48 Financial Analysis: Use Your Data Effectively 24

Net Asset Classification Disclosures One step further: This presentation would require expanded footnote disclosure 49 Net Asset Classification Endowments Underwater Endowments Change: Required to be included in net assets with donor restrictions, rather than in net assets without donor restrictions (current GAAP) Change: In addition to aggregate amounts by which funds are underwater, also disclose: Original gift amount (or amount required to be maintained by donor or law) The fair value of such funds Any governing body policy or decisions to spend, or not spend, from such funds 50 Financial Analysis: Use Your Data Effectively 25

Net Asset Classification Endowments 51 Net Asset Classification Endowments The previous slide provides an example of how to disclose the aggregate gift amount. Underwater amounts would be netted in accumulated investment earnings. The governing board policy and any actions regarding appropriation are up to your organization to determine and disclose. 52 Financial Analysis: Use Your Data Effectively 26

Net Asset Classification Expiration of Capital Restrictions Change: Requires placed in service method for releasing from restriction (no more implied time restrictions) Most common application for GF NFP s? Grant Funded Equipment 53 Net Asset Classification Expiration of Capital Restrictions Common footnote disclosure under current GAAP for GFE: 54 Financial Analysis: Use Your Data Effectively 27

Net Asset Classification Expiration of Capital Restrictions Example footnote disclosure under NEW GAAP: 55 Cash Flow Statement The standard will continue to allow a choice between the direct method and the indirect method in presenting cash flows Key change: if the direct method is presented, the standard no longer requires indirect reconciliation 56 Financial Analysis: Use Your Data Effectively 28

Cash Flow Statement Direct Method Example: RECONCILIATION NO LONGER REQUIRED 57 Cash Flow Statement Indirect Method Example: 58 Financial Analysis: Use Your Data Effectively 29

Liquidity and Availability of Resources Qualitative Information: What: How does the NFP manage its liquid available resources and its liquidity risk? Where: Footnotes Quantitative Information: What: How are the NFP s assets available at the statement of financial position date to meet cash needs for general expenditures within one year Where: Either on the face and/or the footnotes 59 Liquidity and Availability of Resources Qualitative Information Example: Quantitative Information Example: The Organization maintains cash and cash equivalents on hand to represent approximately 6 months of general operating expenditures. These balances are held in liquid bank accounts or other securities or investments with maturities of 3 months or less. 60 Financial Analysis: Use Your Data Effectively 30

Expenses and Expense Allocation Change: Required now to report expenses either on the face of the financials OR in the footnotes by: Function* Natural Classification Analysis (disaggregate function by nature)** The standard also provides enhanced guidance on allocations from M&G expenses key concept: direct conduct or direct supervision *currently required in GAAP **choice of location; FASB may explore segment reporting instead for HC in Phase II 61 Expenses and Expense Allocation Change in definition of management and general: Supporting activities that are not directly identifiable with one or more program, fundraising, or membership-development activities. Which activities constitute direct conduct or direct supervision of a program or support function and, therefor would require allocation of costs? 62 Financial Analysis: Use Your Data Effectively 31

Expenses and Expense Allocation Example 1: The CFO has primary responsibility for: Accounting and reporting Short-term budgeting and long-term financial planning Cash management Direct oversight of the endowment 63 Expenses and Expense Allocation Program Management and General Fund-raising/ Development Accounting and Reporting Short-term budgeting/long-term financial planning Cash management Direct oversight of the endowment (investment expenses) 64 Financial Analysis: Use Your Data Effectively 32

Expenses and Expense Allocation Example 2: An accountant is responsible for: Federal and state grant accounting and reporting. Including a fiscal report required to be filed that details expenses incurred and charged against the grant. 65 Expenses and Expense Allocation Program Management and General Fund-raising/ Development Grant accounting and reporting Rationale: the fiscal report is not part of the direct conduct or direct supervision of the grant, but rather is an accounting function. 66 Financial Analysis: Use Your Data Effectively 33

Expenses and Expense Allocation Example 3: A CEO is responsible for: Direct oversight of a research program Maintaining current and soliciting potential donors Indirectly supervising other areas of the organization 67 Expenses and Expense Allocation Program Management and General Fund-raising/ Development Direct oversight of research program Indirectly supervising other areas of the organization Maintaining current and soliciting potential donors 68 Financial Analysis: Use Your Data Effectively 34

Expenses and Expense Allocation NFP s also required to provide qualitative disclosures about methods used to allocate costs among program and support functions Example Qualitative Disclosure: 69 Expenses and Expense Allocation Example Analysis: 70 Financial Analysis: Use Your Data Effectively 35

Investment Return Change: requires netting investment expenses against investment return on the face of the statement of activities (netting limited to external and direct internal (conduct or supervision) expenses) Disclosure no longer required 71 Strategy for Implementation 72 Financial Analysis: Use Your Data Effectively 36

Implementation Strategy Toolkit Wipfli is in the process of developing one, other firms probably have something similar Lays out the information necessary to complete the changes to the financial presentation that are required Review and understand early so you re not scrambling when the time comes for implementation Utilize others outside of fiscal (development, etc.) in information gathering 73 Implementation Strategy Discuss with your auditors Discuss early implementation if it s something you re interested in Ask your auditors if they have a toolkit or information gathering tool they d like you to use If you prepare your financial statement draft, work collaboratively to ensure you don t miss anything significant to avoid findings Even if you don t prepare your financial statement draft, talk with your auditors so that they know you understand what s required 74 Financial Analysis: Use Your Data Effectively 37

Implementation Strategy There shouldn t be a need to change internal processes/procedures will mostly be data gathering and presentation 75 Timing for Implementation 76 Financial Analysis: Use Your Data Effectively 38

Get Ready Early Effective date for implementation: For fiscal years beginning after December 15, 2017 (essentially fiscal years ending December 31, 2018 and after) Early Adoption: permitted, but must apply the regular transition provisions. Transition: For year of adoption: apply all provisions For comparative years presented: apply all provisions, except can choose not to present: Analysis of expenses by nature and function*, and /or Disclosures around liquidity and availability of resources *unless already required to do so under current GAAP 77 Get Ready Early Other important notes: NFP s are already permitted to incorporate many of the changes required (e.g. netting investment expenses, presenting expenses by nature and function, using placed in service approach, etc.) The only changes that cannot be implemented without formal adoption of the standard are: Changing the net asset classification Change classification of underwater endowment net assets Eliminating net investment expenses disclosure Eliminating requirement to present indirect reconciliation if direct method of cash flow reporting is used 78 Financial Analysis: Use Your Data Effectively 39

Phase II 79 Phase II Will deal with more controversial topics Whether to require an operating measure for notfor-profits (and how to define if so) Whether a not-for-profit should present segment information instead of expenses by nature and function Some may apply only to not-for-profits that appear to operate like business (e.g. health care NPO s) 80 Financial Analysis: Use Your Data Effectively 40

www.wipfli.com/ngp Connect with me: www.linkedin.com/in/denestobie www.facebook.com/wipflingp Denes L. Tobie, CPW, Partner dtobie@wipfli.com 608.270.2929 My Wipfli Access to our experts: Regulation questions Audit Process Human Resource Technology Leadership www.wipfli.com/mywipfli 81 EVALUATIONS The Partnership Wants Your Feedback! Please be sure to complete the evaluation for this session online, via the CAPCON17 Event App. Thanks in Advance for your Cooperation! Financial Analysis: Use Your Data Effectively 41